The Nordic Model

The Nordic Model – A Modern Welfare State

The Nordic Model is known throughout the world – especially in Denmark, Sweden, and Norway – for the way in which it structures financial, political, and institutional systems.

The combination of free market capitalism and strong democracy, including a modern welfare state and a corporatist system with a tripartite arrangement, is unique among the Scandinavian countries.

Part of the Nordic Model is a comprehensive welfare state. The welfare states of the Nordic countries are based on the idea of equal opportunities, equitable distribution of wealth, and state responsibility for the economic and social well-being of citizens and vulnerable groups.

The modern welfare state

The welfare state of the Scandinavian countries is a largely tax-funded system with flat tax rates. These funds are transferred to:

Free public services: education and universal healthcare

Individuals in terms of benefits: public pension plans, unemployment funds, social welfare, and education grants providing a social safety net for retired and ill individuals, unemployed workers, and students.

One of the Scandinavian countries, Denmark, is known for its flexicurity model, which protects workers and not jobs. The model consists of two parts:

The corporatist system

To reduce conflict between labour and the interests of capital, a corporatist tripartite system consisting of the state and of employers’ and employees’ organisations (trade unions) negotiates wages and the terms that regulate the workplace. As a consequence, a large percentage of the workforce – between 52% and 86% – is unionized.

Free market capitalism

The economic foundation of the Scandinavian countries is free market capitalism. This means that private ownership, including strong property rights combined with the idea of a free market and free trade, form the societies.

World happiness reports

The Nordic countries are among the happiest in the world. According to happiness reports, this is because these societies have values that support the well-being of their citizens:

Income and a high GDP per capita

A healthy life expectancy

Freedom to make life choices

Low levels of corruption

High levels of trust

Several of these factors relate to the welfare state, which prompts citizens to believe that the state will provide help when needed. This makes citizens feel secure; despite the hardships that come their way, they believe that everything will be alright in the end.

Challenges for the Nordic Model

Governing a large public sector is challenging, and the results and the quality vary.

Also, a large number of ageing individuals compared to youth presents a challenge to the tax-funded welfare state. Simultaneously, a relatively large number of Scandinavians are receiving some kind of social transfer compared to individuals in the workforce who are contributing to tax payments.

When it comes to immigrants, Scandinavian countries have long struggled to benefit from newcomers and the opportunity to obtain a more diverse workforce and society. This means a relatively high percentage of immigrants have been granted social transfer and are not part of the labour market.

Another disadvantage of being used to having a welfare state is that the population expects the state to take care of everything for it. On the positive side, this leads to feelings of security should anything happen to you or if you lost your job. On the negative side, being accustomed to the welfare state can, at times, cause citizens to feel entitled to receive, or even speculate on, governmental benefits. Sometimes the welfare state is seen as a “mother” who is ready to help when something goes wrong. This may lead to passivity on a personal level.